Euro rises as German court says bailout fund ruling to go ahead

The euro rose to the highest in almost four months versus the dollar after Germany’s top constitutional court said it will proceed with a ruling on the country’s role in the European Stability Mechanism bailout fund.

The dollar fell to the lowest in almost three months against the yen before the Federal Reserve starts a two-day meeting tomorrow amid speculation it will buy bonds to boost the economy in a third round of so-called quantitative easing. New Zealand’s dollar strengthened against all of its 16 major peers as Fitch Ratings affirmed the nation’s AA rating.

“The market is anticipating the German Constitutional Court will approve the ESM,” said Yoshitsugu Fujita, assistant vice-president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “If it actually passes” the euro may rally, he said.

The 17-nation currency gained 0.4 percent to $1.2810 at 9:02 a.m. New York time. It earlier touched $1.2819, the highest since May 22. The euro dropped 0.2 percent to 99.73 yen. The dollar slipped 0.6 percent to 77.84 yen, touching the weakest since June 1.

The euro may strengthen to a four-month high against the dollar, UBS AG said, citing trading patterns.

Chart Points

The shared currency may rise to $1.2935, the 61.8 percent retracement from its decline from the Feb. 24 high to the July 24 low on the Fibonacci chart, Richard Adcock, head of fixed-income technical strategy in London, wrote in an e-mailed note to clients today. That would be the highest since May 11, according to data compiled by Bloomberg.

Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

The implied volatility of three-month options for Group of Seven currencies touched 7.81 percent, the lowest since October 2007, according to the JPMorgan G7 Volatility Index. A decrease makes investments in currencies with higher benchmark lending rates more attractive as the risk in such trades is that market moves will erase profits.

New Zealand’s so-called kiwi advanced as Fitch affirmed the country’s AA rating, citing its strong governance and business environment.

The kiwi rose 0.9 percent to 81.59 U.S. cents and added 0.3 percent to 63.52 yen.